principles of economics

¶ … Economics

Productivity and Unemployment

Given that improved technology will likely result in lower input costs and higher rates of productivity, this will enable companies to lower their prices and consumers to buy more goods and services at the same prices. Thus, the senator's proposal is likely to garner him more, rather than fewer votes in the general electorate. The national supply curve will shift to the right, as resources are employed more efficiently, with the same input costs and consumer demand will increase because of lower prices. Although lower input costs means a lesser need for labor and reduced jobs within an immediate industry, greater demand overall in the economy can also mean a need for more workers. The definition of full employment, according to economists is that cyclical unemployment is zero. The lower costs of production may actually bring current totals closer to that number as the economy is already operating below full employment. This means that the proposal may also be helpful to the senator's relationship with labor unions as well in general, depending on the industry.

The likely effects of increasing productivity on equilibrium GDP will be an increase in the sum total of the Gross Domestic Product. Improving technology and subsequently reducing output costs as a result is likely to decrease the risk of inflation in the short run, just as during the 1970s, increasing the input costs of oil resulted in increased inflation. However, if the economy continues to overheat, as producers produce more goods, employ more workers, and workers spend more of their salaries on more and more goods, inflation may be a concern in the long-term. This is especially true, given the currently high levels of unemployment, which means many people are unemployed and many workers have not gotten raises recently, thus they may spend a great deal if prices go down in the short run and their income increases.